Initially Caltrans had planned to break the implementation of the Presidio Parkway into eight contracts: two pre-construction contracts to complete environmental mitigation and utility relocation, and six roadway construction and landscaping contracts. However, Caltrans' decisions on options for phasing and procuring the project were influenced by two notable pieces of legislation in 2009.
In early 2009, the federal government passed the Recovery Act in response to deepening recession from the financial crisis of late 2008. It allocated additional federal funding to the project, augmenting a series of local, state, and federal funding sources that had already been committed to it. However, in order to utilize the Recovery Act funding, Caltrans was required to accelerate the schedule of the Presidio Parkway. The accelerated implementation also resulted in significant savings from reduced escalation costs and the favorable contract bidding environment after the economic downturn. In addition, the expedited schedule would also accelerate safety and seismic benefits by shifting traffic completely off the existing Doyle Drive structures more quickly.
Also in early 2009, the state of California passed new legislation permitting the use of public-private partnerships (P3s) without the need to seek legislative approval on a project-by-project basis. As with the Recovery Act at the federal level, the bill was also passed in response to the financial crisis, with the intent of promoting P3 agreements that might include private sector finance, design, construction, maintenance, and operation of transportation facilities. A Public Infrastructure Advisory Commission was also established to assist Caltrans and other transportation agencies in developing public-private agreements for high-priority projects.
As a result of the new state and federal legislation, Caltrans adopted a two-phased approach to procure the Presidio Parkway. It packaged four of the eight contracts into a single $496 million Phase 1 procurement using a traditional project delivery method known as design-bid-build. With this method Caltrans completed the design to 100 percent and then awarded contracts to the qualified construction contractor submitting the lowest bid price. The Phase 1 procurement included a portion of the new roadway and a temporary bypass route that would accommodate traffic and eliminate seismic risks while the remainder of the project was completed. Construction of Phase I began in late 2009 and was completed in April 2012.
Caltrans and SFCTA chose to capitalize on the newly enacted state P3 legislation to deliver the remainder of the project. They selected an option whereby a private sector developer would be responsible for the financing, design, and construction of the remaining four construction contracts (Phase II), as well as the long-term operation and maintenance of the full Presidio Parkway project for a period of 30 years. This arrangement is referred to as a concession. While the roadway is still owned by the state, all other responsibilities are transferred to the private sector partner during the concession period. An analysis revealed this approach to be the best option among several considered, including traditional procurement approaches like the one used for Phase I. The advantages of the concession approach used on Phase II included lower long-term operation and maintenance costs, reduced risk of exceeding the project budget or not meeting the construction schedule, and access to upfront private sector financing, which would free up public funds for other critical projects in the state.
In order for the private partner to arrange financing, P3 projects must have a dedicated revenue stream. With the Presidio Parkway, Caltrans and SFCTA opted for an availability payment structure where annual payments are made to the private partner based on the "availability" of the facility at a pre-defined level of condition and performance. Tolling the roadway-the most common revenue source for P3 projects-was strongly opposed by commuters in Marin County north of the city who use the route to access San Francisco.
In order to authorize California's commitment to fund the availability payments, the State Legislature enacted a "continuous appropriation" provision as part of its Fiscal Year 2011 budget passed in 2010. This legislation commits the state to provide the necessary funding for the availability payments in its annual budget and identifies specific sources of funds to cover them along with some contingencies over the life of the concession. The continuous appropriation mechanism also provides protection against budget delays, because, as a lump-sum appropriation, the funds may be paid regardless of passage of the annual budget.